UPDATE 2-McDonald's January sales dragged down by China, Japan

Reuters Staff

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By Lisa Baertlein and Yashaswini Swamynathan

Feb 9 (Reuters) - McDonald’s Corp on Monday reported a steeper-than-expected drop in January sales at established restaurants and pinned a big portion of the blame on the after-effects of food safety scandals in China and Japan.

January marked the eighth straight month of worldwide same-restaurant sales declines at McDonald‘s, which is replacing Chief Executive Don Thompson with Chief Brand Officer Steve Easterbrook following one of its worst years in decades.

The company is fighting to win back customers, particularly in the United States, after failing to keep up with diners’ increasing demand for healthier, fresher food. It also is grappling with economic and political turmoil in Europe, its top sales market.

Shares of the world’s largest fast-food chain were down 1.1 percent at $92.96 in morning trading.

Comparable restaurant sales in the Asia Pacific, Middle East and Africa region fell 12.6 percent in January, significantly more than the 8.4 percent drop analysts expected.

Several Asian markets have yet to recover from last year’s food supplier scandal in China. The incident was sparked by a local TV report that showed workers at Shanghai Husi, a major McDonald’s supplier, allegedly using expired meat.

Customers were further spooked last month after objects, including a tooth and plastic, were found in McDonald’s food in Japan.

McDonald’s in a statement on Monday said “brand recovery” was a top priority in Asia. It has suspended ties with Shanghai Husi parent OSI Group LLC, and its Japanese unit shifted supply chain oversight to its chief financial officer.

TWO-MONTH TREND

U.S. same-restaurant sales rose 0.4 percent in January, their second consecutive monthly gain. Still, McDonald’s said “aggressive competitive activity” largely offset strong breakfast sales. December’s increase was the first for U.S. restaurant sales since October 2013.

McDonald’s U.S. has been trimming complicated menus, ceding control to restaurant operators and testing customized burgers to compete with popular chains ranging from Chic-fil-A to Chipotle Mexican Grill Inc.

In Europe, same-restaurant sales were up 0.5 percent after demand in the United Kingdom and Germany slightly offset weakness in France and Russia. Analysts had expected a 0.5 percent drop.

McDonald‘s, with more than 36,000 restaurants, reported declines in net income and revenue for 2014. (Reporting by Yashaswini Swamynathan in Bengaluru and Lisa Baertlein in Los Angeles; Editing by Savio D‘Souza and Lisa Von Ahn)